Exhibit 4.7
CONVERTIBLE DEBENTURES AND WARRANTS PURCHASE AGREEMENT
BETWEEN
DETOUR MAGAZINE, INC.
AND
THE INVESTORS SIGNATORY HERETO
CONVERTIBLE DEBENTURES AND WARRANTS PURCHASE AGREEMENT dated as of June
12, 2000 (the "Agreement"), between the Investors signatory hereto (each an
"Investor" and together the "Investors"), and Detour Magazine, Inc., a
corporation organized and existing under the laws of the State of Colorado (the
"Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase in the aggregate (i) $1,000,000 principal
amount of Convertible Debentures (as defined below) and (ii) Warrants (as
defined below) to purchase shares of the Common Stock (as defined below); and
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and/or 4(6) of the United States Securities Act
of 1933, as amended (the "Securities Act") and/or Regulation D ("Regulation D")
and/or Regulation S and the other rules and regulations promulgated thereunder,
and/or upon such other exemption from the registration requirements of the
Securities Act as may be available with respect to any or all of the investments
in securities to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. "Applicable State Securities Laws" shall mean the securities laws
of the State of Colorado and the State of California.
Section 1.2. "Capital Shares" shall mean the Common Stock and any shares of any
other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
Section 1.3. "Capital Shares Equivalents" shall mean any securities, rights, or
obligations that are convertible into or exchangeable for or give any right to
subscribe for any Capital Shares of the Company or any warrants, options or
other rights to subscribe for or purchase Capital Shares or any such convertible
or exchangeable securities.
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Section 1.4. "Closing" shall mean the closing of the purchase and sale of the
Convertible Debentures pursuant to Section 2.1. Section 1.5. "Closing Date"
shall mean the date on which all conditions to the Closing have been satisfied
(as defined in Section 2.1 (b) hereto) and the Closing shall have occurred.
Section 1.6. "Common Stock" shall mean the Company's common stock, $0.01 par
value per share. Section 1.7. "Conversion Shares" shall mean the shares of
Common Stock issuable upon conversion of the Convertible Debenture.
Section 1.8. "Convertible Debenture(s)" shall mean the $1,000,000 principal
amount of 10% Convertible Debentures due June __, 2003, in the form of Exhibit A
hereto. Section 1.9. "Damages" shall mean any loss, claim, damage, judgment,
penalty, deficiency, liability, costs and expenses (including, without
limitation, reasonable attorney's fees and disbursements and reasonable costs
and expenses of expert witnesses and investigation).
Section 1.10. "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
Section 1.11. "Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
Section 1.12. "Escrow Agreement" shall mean the Escrow Agreement in
substantially the form of Exhibit C hereto executed and delivered
contemporaneously with this Agreement.
Section 1.13. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
Section 1.14. "Legend" shall mean the legend set forth in Section 9.1.
Section 1.15. "Market Price" on any given date shall mean the lesser of: (i)
$0.90 per share or (ii) 80% of the average of the three (3) lowest closing bid
prices out of the twenty-two (22) Trading Days immediately preceding the date in
question the Principal, or, only if the stock is listed on the OTC Bulletin
Board, at each Investor's option, on the pink sheets or any other trading market
(as reported by Bloomberg L.P.) of the Common Stock on the Trading Day
immediately prior to the date for which the Market Price is to be determined.
Section 1.16. "Material Adverse Effect" shall mean any effect on the business,
operations, properties, prospects, stock price or financial condition of the
Company that is material and adverse to the Company and its subsidiaries, taken
as a whole, and/or any condition, circumstance, or situation that would prohibit
or otherwise interfere with the ability of the Company to enter into and perform
any of its obligations under this Agreement, the Registration Rights Agreement,
the Convertible Debentures, the Warrants or the Escrow Agreement in any material
respect.
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Section 1.17. "Outstanding" when used with reference to shares of Common Stock
or Capital Shares (collectively the "Shares"), shall mean, at any date as of
which the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not mean any such Shares then
directly or indirectly owned or held by or for the account of the Company.
Section 1.18. "Person" shall mean an individual, a corporation, a partnership, a
limited liability company, an association, a trust or other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
Section 1.19. "Principal Market" shall mean the American Stock Exchange, the New
York Stock Exchange, the NASDAQ National Market, the NASDAQ Small-Cap Market or
the OTC Bulletin Board, whichever is at the time the principal trading exchange
or market for the Common Stock, based upon share volume.
Section 1.20. "Purchase Price" shall mean the principal amount of the
Convertible Debenture.
Section 1.21. "Registrable Securities" shall mean the Conversion Shares and the
Warrant Shares until (i) the Registration Statement has been declared effective
by the SEC, and such Conversion Shares and Warrants have been disposed of
pursuant to the Registration Statement, (ii) such Conversion Shares and Warrant
Shares have been sold under circumstances under which all of the applicable
conditions of Rule 144 (or any similar provision then in force) under the
Securities Act ("Rule 144") are met, (iii) such Conversion Shares have been
otherwise transferred to holders who may trade such shares without restriction
under the Securities Act, and the Company has delivered a new certificate or
other evidence of ownership for such securities not bearing a restrictive legend
or (iv) such time as, in the opinion of counsel to the Company, such Conversion
Shares and Warrant Shares may be sold without any time, volume or manner
limitations pursuant to Rule 144(k) (or any similar provision then in effect)
under the Securities Act.
Section 1.22. "Registration Rights Agreement" shall mean the agreement regarding
the filing of the Registration Statement for the resale of the Registrable
Securities, entered into between the Company and the Investors as of the Closing
Date in the form annexed hereto as Exhibit B.
Section 1.23. "Registration Statement" shall mean a registration statement on
Form S-3 (if use of such form is then available to the Company pursuant to the
rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate, and which form shall be available for the resale by the Investors
of the Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
Section 1.24. "Regulation D" shall have the meaning set forth in the recitals of
this Agreement.
Section 1.25. "Regulation S" shall have the meaning set forth in the recitals of
this Agreement.
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Section 1.26. "SEC" shall mean the Securities and Exchange Commission.
Section 1.27. "SEC Documents" means the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1999, and each report, proxy statement or
registration statement filed by the Company with the SEC pursuant to the
Exchange Act or the Securities Act since the filing of such Annual Report
through the date hereof.
Section 1.28. "Section 4(2)" and "Section 4(6)" shall have the meanings set
forth in the recitals of this Agreement.
Section 1.29. "Securities" shall mean the Convertible Debentures, the Conversion
Shares, the Warrants and the Warrant Shares.
Section 1.30. "Securities Act" shall have the meaning set forth in the recitals
of this Agreement. Section 1.31. "Shares" shall have the meaning set forth in
Section 1.16. Section 1.32. "Trading Day" shall mean any day during which the
Principal Market shall be open for business.
Section 1.30 "Warrants" shall mean the Warrants substantially in the form of
Exhibit B to be issued to the Lenders hereunder.
Section 1.31 "Warrant Shares" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE OF CONVERTIBLE DEBENTURES AND WARRANTS
Section 2.1. Investment.
(i) Upon the terms and subject to the conditions set forth herein,
the Company agrees to sell, and the Investors, severally and
not jointly, agree to purchase Convertible Debentures together
with the Warrants at the Purchase Price on the Closing Date.
Upon execution and delivery of this Agreement, the Investors
shall purchase, in the aggregate, the principal amount of
$1,000,000 of Convertible Debentures. Each Investor shall
deliver to the Escrow Agent immediately available funds in
their proportionate amount of the Purchase Price as set forth
on the signature pages hereto, and the Company shall deliver
the Convertible Debenture certificates and the Warrants to the
Escrow Agent, in each case to be held by the Escrow Agent
pursuant to the Escrow Agreement. Upon satisfaction of the
conditions set forth in Section 2.1(b), the Closing shall
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occur at the offices of the Escrow Agent at which the Escrow
Agent (x) shall release the Convertible Debentures and the
Warrants to the Investors and (y) shall release the Purchase
Price (after all fees have been paid as set forth in the
Escrow Agreement), pursuant to the terms of the Escrow
Agreement.
(b) The Closing is subject to the satisfaction or waiver by the party
to be benefited thereby of the following conditions:
(i) acceptance and execution by the Company and by the Investors,
of this Agreement and all Exhibits hereto;
(ii) delivery into escrow by each Investor of immediately available
funds in the amount of the Purchase Price of the Convertible
Debentures and the Warrants purchased at the Closing, as more
fully set forth in the Escrow Agreement;
(iii) all representations and warranties of the Investors contained
herein shall remain true and correct as of the Closing Date
(as a condition to the Company's obligations);
(iv) all representations and warranties of the Company contained
herein shall remain true and correct as of the Closing Date
(as a condition to the Investors' obligations);
(v) the Company shall have obtained all permits and qualifications
required by any state for the offer and sale of the
Convertible Debentures and the Warrants, or shall have the
availability of exemptions therefrom;
(vi) the sale and issuance of the Convertible Debentures and the
Warrants hereunder, and the proposed issuance by the Company
to the Investors of the Common Stock underlying the
Convertible Debentures and the Warrants upon the conversion or
exercise thereof shall be legally permitted by all laws and
regulations to which the Investors and the Company are subject
and there shall be no ruling, judgment or writ of any court
prohibiting the transactions contemplated by this Agreement;
(vii) delivery of the original fully executed Convertible Debenture
certificates and the Warrants to the Escrow Agent;
(viii) delivery to the Escrow Agent of an opinion of Troop Xxxxxxx
Pasich Reddick & Xxxxx, LLP and Xxxxxx X. Xxxxxx, P.C.,
counsels to the Company, in the form of Exhibit D hereto;
(ix) delivery to the Escrow Agent of the Irrevocable Instructions
to Transfer Agent in the form attached hereto as Exhibit E;
and delivery to the Escrow Agent of the Registration Rights
Agreement.
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Section 2.2. The Warrants. For the $1,000,000 principal amount of Convertible
Debentures purchased by the Investors, in the aggregate, pursuant to this
Agreement, the Company shall issue, at the Closing, two hundred fifty thousand
(250,000) Warrants to the Investors, pro rata among all the Investors in
proportion to their respective initial purchases of the Convertible Debentures
pursuant to this Agreement. Half of the Warrants issued to each Investor shall
have an exercise price of 110% of the closing bid price on the Trading Day
immediately preceding the Closing Date and the other half shall have an exercise
price of 125% of the closing bid price on the Trading Day immediately preceding
the Closing Date. The Warrants shall have a term of five (5) years.
Section 2.3. Liquidated Damages. The parties hereto acknowledge and agree that
the sum payable pursuant to the Registration Rights Agreement for late
registration and the sum payable pursuant to the Convertible Debentures for late
delivery of Common Stock certificates shall constitute liquidated damages and
not penalties. The parties further acknowledge that (a) the amount of loss or
damages likely to be incurred is incapable or is difficult to precisely
estimate, (b) the amount specified in such provisions bear a reasonable
proportion and are not plainly or grossly disproportionate to the probable loss
likely to be incurred by the Investors in connection with the failure of the
Company to timely cause the registration of the Registrable Securities or to
deliver stock certificates upon any conversion, and (c) the parties are
sophisticated business parties and have been represented by sophisticated and
able legal and financial counsel and negotiated this Agreement at arm's length.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Each Investor, severally and not jointly, represents and warrants to the Company
that:
Section 3.1. Intent. The Investor is entering into this Agreement for its own
account and not with a view to or for sale in connection with any distribution
of the Securities. The Investor has no present arrangement (whether or not
legally binding) at any time to sell the Convertible Debenture, the Warrants or
any Conversion Shares or Warrant Shares to or through any person or entity;
provided, however, that by making the representations herein, the Investor does
not agree to hold such securities for any minimum or other specific term and
reserves the right to dispose of the Conversion Shares and Warrant Shares at any
time in accordance with federal and state securities laws applicable to such
disposition.
Section 3.2. Sophisticated Investor. The Investor is a non-United States Person
(as defined in Regulation S, and is not acquiring the Securities for the account
of a U.S. Person) and a sophisticated investor (as described in Rule
506(b)(2)(ii) of Regulation D) and an accredited investor (as defined in Rule
501 of Regulation D), and Investor has such knowledge and experience in business
and financial matters that it has the capacity to protect its own interests in
connection with this transaction and is capable of evaluating the merits and
risks of an investment in the Convertible Debenture, the Warrants and the
underlying Common Stock. The Investor has been represented by counsel of its
choice. The Investor acknowledges that an
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investment in the Convertible Debenture, the Warrants and the underlying Common
Stock is speculative and involves a high degree of risk.
Section 3.3. Authority. This Agreement and each agreement attached as an Exhibit
hereto which is required to be executed by Investor has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 3.4. Not an Affiliate. The Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5. Absence of Conflicts. The execution and delivery of this Agreement
and each agreement which is attached as an Exhibit hereto and executed by the
Investor in connection herewith, and the consummation of the transactions
contemplated hereby and thereby, and compliance with the requirements hereof and
thereof by the Investor, will not violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on Investor or (a) violate
any provision of any indenture, instrument or agreement to which Investor is a
party or is subject, or by which Investor or any of its assets is bound; (b)
conflict with or constitute a material default thereunder; (c) result in the
creation or imposition of any lien pursuant to the terms of any such indenture,
instrument or agreement, or constitute a breach of any fiduciary duty owed by
Investor to any third party; or (d) require the approval of any third-party
(which has not been obtained) pursuant to any material contract, agreement,
instrument, relationship or legal obligation to which Investor is subject or to
which any of its assets, operations or management may be subject.
Section 3.6. Disclosure; Access to Information. The Investor has had the
opportunity to ask questions and receive answers concerning the terms and
conditions of the offering of the Securities and has received all reports,
documents, records, books and other publicly available information required to
be filed by the Company pursuant to the Exchange Act and pertaining to
Investor's investment in the Company that have been requested by the Investor.
The Company is subject to the periodic reporting requirements of the Exchange
Act, and the Investor has reviewed copies of all SEC Documents deemed relevant
by Investor. The Investor has had the opportunity to obtain any additional
information which the Company possesses or can acquire without unreasonable
effort or expense that is necessary to verify the accuracy of information
furnished in accordance with this Section 3.6.
Section 3.7. Manner of Sale. At no time was Investor presented with or solicited
by or through any leaflet, public promotional meeting, television advertisement
or any other form of general solicitation or advertising and the investor was
outside the United States both at the time it received the offer to sell the
Securities and at the time the Investor purchased the Securities.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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The Company represents and warrants to the Investors that, except as set forth
on the SEC Documents or on the Disclosure Schedule prepared by the Company and
attached hereto:
Section 4.1. Organization of the Company. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Colorado and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries and does not own more that fifty percent (50%) of or control any
other business entity except as set forth in the SEC Documents. The Company is
duly qualified and is in good standing as a foreign corporation to do business
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
Section 4.2. Authority. (i) The Company has the requisite corporate power and
corporate authority to conduct its business as now conducted, to enter into and
perform its obligations under this Agreement, the Registration Rights Agreement,
the Escrow Agreement and the Warrants and to issue the Convertible Debentures
and the Conversion Shares, the Warrants and the Warrant Shares pursuant to their
respective terms, (ii) the execution, issuance and delivery of this Agreement,
the Registration Rights Agreement, the Escrow Agreement and the Convertible
Debentures, the Convertible Debentures and the Warrants by the Company and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, and (iii) this Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Warrants and the Convertible Debentures have been duly
executed and delivered by the Company and at the Closing shall constitute valid
and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application. The Company has duly and validly
authorized and reserved for issuance shares of Common Stock sufficient in number
for the conversion of the Convertible Debentures. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock of the issuance
of the Conversion Shares. The Company further acknowledges that its obligation
to issue Conversion Shares upon conversion of the Convertible Debentures and
Warrant shares upon exercise of the Warrants in accordance with this Agreement
and the Convertible Debentures is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company and notwithstanding the commencement of any case
under 11 U.S.C. ss. 101 et seq. (the "Bankruptcy Code"). The Company shall not
seek judicial relief from its obligations hereunder except pursuant to the
Bankruptcy Code. In the event the Company is a debtor under the Bankruptcy Code,
the Company hereby waives to the fullest extent permitted any rights to relief
it may have under 11 U.S.C. ss. 362 in respect of the conversion of the
Convertible Debentures and the exercise of the Warrants. The Company agrees,
without cost or expense to the Investors, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. ss. 362.
Section 4.3. Capitalization. As of the date of this Agreement, the authorized
capital stock of the Company consists of 25,000,000 shares of Common Stock,
$0.001 par value per share, of which 19,152,669 shares are issued and
outstanding and 10,000,000 shares of preferred stock par
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value $0.01, of which none are issued and outstanding. Other than options and
warrants to purchase 2,091,250 shares of Common Stock, there are no outstanding
Capital Shares Equivalents nor any agreements or understandings pursuant to
which any Capital Shares Equivalents may become outstanding. Except as set forth
on Schedule 4.3 of the Disclosure Schedule, the Company is not a party to any
agreement granting registration or anti-dilution rights to any person with
respect to any of its equity or debt securities. All of the outstanding shares
of Common Stock of the Company have been duly and validly authorized and issued
and are fully paid and non-assessable and have been issued pursuant to valid
exemptions from registration under the Securities Act and all applicable state
"blue sky" laws.
Section 4.4. Common Stock. The Company has registered its Common Stock pursuant
to Section 12(b) or (g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and the Company is in compliance
with all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on, a Principal
Market. As of the date hereof, the Principal Market is the OTC Bulletin Board
and the Company has not received any pending notice regarding, and to its
knowledge there is no threat, of the termination or discontinuance of the
eligibility of the Common Stock for such listing that would have a material
adverse effect on the Company.
Section 4.5. SEC Documents. The Company has made available to the Investors true
and complete copies of the SEC Documents. The Company has not provided to the
Investors any information that, according to applicable law, rule or regulation,
should have been disclosed publicly prior to the date hereof by the Company, but
which has not been so disclosed. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act, and
rules and regulations of the SEC promulgated thereunder and the SEC Documents
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). As of the date hereof,
neither the Company nor any of its subsidiaries has any material indebtedness,
obligations or liabilities of any kind (whether accrued, absolute, contingent or
otherwise, and whether due or to become due) that would have been required to be
reflected in, reserved against or otherwise described in the financial
statements or in the notes thereto in accordance with GAAP, which was not fully
reflected in, reserved against or otherwise described in the financial
statements or the notes thereto included in the SEC Documents or was not
incurred in the ordinary course of business consistent with the Company's past
practices since the last date of such financial statements.
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Section 4.6. Exemption from Registration; Valid Issuances. Subject to the
accuracy of the Investors' representations in Article III, the sale of the
Convertible Debentures and the Conversion Shares, the Warrants and Warrant
Shares will not require registration under the Securities Act and/or California
Law. When issued and paid for in accordance with the Warrants and validly
converted in accordance with the terms of the Convertible Debentures, the
Conversion Shares and Warrant Shares will be duly and validly issued, fully
paid, and non-assessable. Neither the sales of the Convertible Debentures, the
Conversion Shares, the Warrants or the Warrant Shares pursuant to, nor the
Company's performance of its obligations under, this Agreement, the Registration
Rights Agreement, the Escrow Agreement, the Convertible Debentures or the
Warrants will (i) result in the creation or imposition by the Company of any
liens, charges, claims or other encumbrances upon the Convertible Debentures or
the Conversion Shares, the Warrants or the Warrant Shares or, except as
contemplated herein, any of the assets of the Company, or (ii) entitle the
holders of Outstanding Capital Shares to preemptive or other rights to subscribe
for or acquire the Capital Shares or other securities of the Company. The
ownership of Convertible Debentures, the Conversion Shares, the Warrants and the
Warrant Shares, shall not subject the Investors to personal liability to the
Company or its creditors by reason of the possession thereof.
Section 4.7. No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor, to the knowledge
of the Company, any person acting on its or their behalf (i) has conducted or
will conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to the sale of the Convertible
Debentures, or (ii) made any offers or sales of any security or solicited any
offers to buy any security under any circumstances that would require
registration of the Convertible Debentures or the Conversion Shares, the
Warrants or the Warrant Shares, under the Securities Act.
Section 4.8. No Conflicts. Except as set forth on Schedule 4.8, the execution,
delivery and performance of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby, including without
limitation the issuance of and payment of interest upon the Convertible
Debentures, the Conversion Shares, the Warrants or the Warrant Shares, do not
and will not (i) result in a violation of the Company's Articles of
Incorporation or By-Laws or (ii) conflict with, or constitute a material default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or instrument, or any
"lock-up" or similar provision of any underwriting or similar agreement to which
the Company is a party, or (iii) result in a violation of any federal, state or
local law, rule, regulation, order, judgment or decree (but not including any
federal and state securities laws other than the Applicable State Securities
Laws) applicable to the Company or by which any material property or asset of
the Company is bound or affected, nor is the Company otherwise in violation of,
conflict with or default under any of the foregoing (except in each case for
such conflicts, defaults, terminations, amendments, accelerations, cancellations
and violations as would not have, individually or in the aggregate, a Material
Adverse Effect). The business of the Company is not being conducted in violation
of any law, ordinance or regulation of any governmental entity, except for
possible violations that either singly or in the aggregate would not have a
Material Adverse Effect. The Company is not required under any Federal, state or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its
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obligations under this Agreement or issue and sell the Convertible Debentures or
the Warrants in accordance with the terms hereof (other than any SEC or state
securities filings that may be required to be made by the Company subsequent to
Closing, any registration statement that may be filed pursuant hereto); provided
that, for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Investors herein.
Section 4.9. No Material Adverse Change. Except as disclosed in the SEC
Documents, since March 31, 2000, no Material Adverse Effect has occurred or
exists with respect to the Company. No material supplier has given notice, oral
or written, that it intends to cease or reduce the volume of its business with
the Company from historical levels.
Section 4.10. No Undisclosed Events or Circumstances. Since March 31, 2000 to
the date hereof, no event or circumstance has occurred or exists with respect to
the Company or its business, properties, prospects, operations or financial
condition, that, under any applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed in writing to the Investors.
Section 4.11. No Integrated Offering. Other than pursuant to an effective
registration statement under the Securities Act, or pursuant to the issuance or
exercise of employee stock options, or pursuant to its discussion with the
Investors in connection with the transactions contemplated hereby, the Company
has not issued, offered or sold the Convertible Debentures or any shares of
Common Stock (including for this purpose any securities of the same or a similar
class as the Convertible Debentures or Common Stock, or any securities
convertible into a exchangeable or exercisable for the Convertible Debentures or
Common Stock, the Warrants or any such other securities) within the six-month
period next preceding the date hereof, and the Company shall not permit any of
its directors, officers or affiliates directly or indirectly to take, any action
(including, without limitation, any offering or sale to any Person of the
Convertible Debentures or shares of Common Stock), so as to make unavailable the
exemption from Securities Act registration being relied upon by the Company for
the offer and sale to Investors of the Convertible Debentures (and the
Conversion Shares, the Warrants or the Warrant Shares) as contemplated by this
Agreement.
Section 4.12. Litigation and Other Proceedings. Except as disclosed in the SEC
Documents, there are no lawsuits or proceedings pending or, to the knowledge of
the Company, threatened, against the Company or any subsidiary, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which could reasonably be expected to have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, to the knowledge of the
Company, requested of any court, arbitrator or governmental agency which could
result in a Material Adverse Effect.
Section 4.13. No Misleading or Untrue Communication. The Company and, to the
knowledge of the Company, any person representing the Company, or any other
person selling or offering to sell the Convertible Debentures or the Warrants in
connection with the transaction contemplated by this Agreement, have not made,
at any time, any oral communication in connection with the offer or sale of the
same which contained any untrue statement of a material fact or omitted to
11
state any material fact necessary in order to make the statements, in the light
of the circumstances under which they were made, not misleading.
Section 4.14. Material Non-Public Information. The Company has not disclosed to
the Investors any material non-public information that (i) if disclosed, would
reasonably be expected to have a material effect on the price of the Common
Stock or (ii) according to applicable law, rule or regulation, should have been
disclosed publicly by the Company prior to the date hereof but which has not
been so disclosed.
Section 4.15. Insurance. The Company and each subsidiary maintains property and
casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance with financially sound and
reputable insurers that is adequate, consistent with industry standards and the
Company's historical claims experience. The Company has not received notice
from, and has no knowledge of any threat by, any insurer (that has issued any
insurance policy to the Company) that such insurer intends to deny coverage
under or cancel, discontinue or not renew any insurance policy presently in
force.
Section 4.16. Tax Matters.
(a) Except as set forth on Schedule 4.15 of the Disclosure Schedule and
except when the failure to do so has not resulted and will not result in a
Material Adverse Effect, the Company and each subsidiary have filed all Tax
Returns which it is required to file under applicable laws; all such Tax Returns
are true and accurate and have been prepared in compliance with all applicable
laws; the Company has paid all Taxes due and owing by it or any subsidiary
(whether or not such Taxes are required to be shown on a Tax Return) and have
withheld and paid over to the appropriate taxing authorities all Taxes which it
is required to withhold from amounts paid or owing to any employee, stockholder,
creditor or other third parties; and since December 31, 1999, the charges,
accruals and reserves for Taxes with respect to the Company (including any
provisions for deferred income taxes) reflected on the books of the Company are
adequate to cover any Tax liabilities of the Company if its current tax year
were treated as ending on the date hereof.
(b) No claim has been made by a taxing authority in a jurisdiction
where the Company does not file tax returns that the Company or any subsidiary
is or may be subject to taxation by that jurisdiction that has resulted or could
result in a Material Adverse Effect. There are no foreign, federal, state or
local tax audits or administrative or judicial proceedings pending or being
conducted with respect to the Company or any subsidiary; no information related
to Tax matters has been requested by any foreign, federal, state or local taxing
authority; and, except as disclosed above, no written notice indicating an
intent to open an audit or other review has been received by the Company or any
subsidiary from any foreign, federal, state or local taxing authority. There are
no material unresolved questions or claims concerning the Company's Tax
liability. The Company (A) has not executed or entered into a closing agreement
pursuant to ss. 7121 of the Internal Revenue Code or any predecessor provision
thereof or any similar provision of state, local or foreign law; or (B) has not
agreed to or is required to make any adjustments pursuant to ss. 481 (a) of the
Internal Revenue Code or any similar provision of state, local or foreign law by
reason of a change in accounting method initiated by the Company or any of its
subsidiaries or has any knowledge that the IRS has proposed any such adjustment
or
12
change in accounting method, or has any application pending with any taxing
authority requesting permission for any changes in accounting methods that
relate to the business or operations of the Company. The Company has not been a
United States real property holding corporation within the meaning of ss.
897(c)(2) of the Internal Revenue Code during the applicable period specified in
ss. 897(c)(1)(A)(ii) of the Internal Revenue Code.
(c) The Company has not made an election under ss. 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another person
that is not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
party to any tax sharing agreement. The Company has not made any payments, is
not obligated to make payments nor is it a party to an agreement that could
obligate it to make any payments that would not be deductible under ss. 280G of
the Internal Revenue Code.
(d) For purposes of this Section 4.16:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise,
profits, sales or use, transfer, registration, excise,
utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other
withholding, employment, social security, severance, stamp,
occupation, alternative or add-on minimum, estimated and other
taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest
attributable thereto) whether disputed or not.
"Tax Return" means any return, information report or filing
with respect to Taxes, including any schedules attached
thereto and including any amendment thereof.
Section 4.17. Property. As of the date hereof, except as set forth in the
Schedule 4.16 of the Disclosure Schedule, neither the Company nor any of its
subsidiaries owns any real property. Each of the Company and its subsidiaries
has good and marketable title to all personal property owned by it, free and
clear of all liens, encumbrances and defects except such as do not materially
affect the value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company; and to the
Company's knowledge any real property and buildings held under lease by the
Company as tenant are held by it under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and intended to be made of such property and buildings by the Company. The
Company's present facilities are adequate for the Company's reasonably
foreseeable needs.
Section 4.18. Intellectual Property. Each of the Company and its subsidiaries
owns or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and proprietary
knowledge (collectively, "Intangibles") necessary for the conduct of its
business as now being
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conducted. To the Company's knowledge, except as disclosed in the SEC Documents,
neither the Company nor any of its subsidiaries is infringing upon or in
conflict with any right of any other person with respect to any Intangibles.
Except as disclosed in the SEC Documents and that has resulted or could result
in a Material Adverse Effect, no adverse claims have been asserted by any person
to the ownership or use of any Intangibles and the Company has no knowledge of
any basis for such claim that has resulted or could result in a Material Adverse
Effect.
Section 4.19. Internal Controls and Procedures. Except in regard to transactions
or events on which the failure to maintain books, records or internal accounting
controls, has not resulted and will not result in a Material Adverse Effect, the
Company maintains books and records and internal accounting controls which
provide reasonable assurance that (i) all transactions to which the Company or
any subsidiary is a party or by which its properties are bound are executed with
management's authorization; (ii) the recorded accounting of the Company's
consolidated assets is compared with existing assets at regular intervals; (iii)
access to the Company's consolidated assets is permitted only in accordance with
management's authorization; and (iv) all transactions to which the Company or
any subsidiary is a party or by which its properties are bound are recorded as
necessary to permit preparation of the financial statements of the Company in
accordance with U.S. generally accepted accounting principles.
Section 4.20. Payments and Contributions. Neither the Company, any subsidiary,
nor any of its directors, officers or, to its knowledge, other employees has (i)
used any Company funds for any unlawful contribution, endorsement, gift,
entertainment or other unlawful expense relating to political activity; (ii)
made any direct or indirect unlawful payment of Company funds to any foreign or
domestic government official or employee; (iii) violated or is in violation of
any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any bribe, rebate, payoff, influence payment, kickback or other similar
payment to any person with respect to Company matters; in each case that has
resulted or could result in a Material Adverse Effect.
Section 4.21. Permits and Licenses. The Company holds all necessary permits and
licenses to conduct its business as presently conducted. All of such permits and
licenses are in full force and effect and the Company is not in material
violation of any thereof.
Section 4.22. No Misrepresentation. The representations and warranties of the
Company contained in this Agreement, any schedule, annex or exhibit hereto and
any agreement, instrument or certificate furnished by the Company to the
Investors pursuant to this Agreement, do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
ARTICLE V
COVENANTS OF THE INVESTORS
Each Investor, severally and not jointly, covenants with the Company
that:
Section 5.1. Compliance with Law. The Investor's trading activities with respect
to shares of the Company's Common Stock will be in compliance with all
applicable state and federal
14
securities laws, rules and regulations and rules and regulations of the
Principal Market on which the Company's Common Stock is listed.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1. Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material respects with the terms thereof.
Section 6.2. Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, 125% of the shares of Common Stock required
for the purpose of enabling the Company to issue the Conversion Shares and the
Warrant Shares pursuant to any conversion of the Convertible Debentures or
exercise of the Warrants (the "Trigger Amount"). The number of shares so
reserved from time to time, as theretofore increased or reduced as hereinafter
provided, may be reduced by the number of shares actually delivered pursuant to
any conversion of the Convertible Debentures or exercise of the Warrants and the
number of shares so reserved shall be increased or decreased to reflect
potential increases or decreases in the Common Stock that the Company may
thereafter be obligated to issue by reason of adjustments to the Warrants. In
the event that the number of shares of Common Stock so reserved is less than the
Trigger Number, then the Company shall have 90 days from such date to increase
the number of shares reserved above the Trigger Amount.
Section 6.3. Listing of Common Stock. Until the earliest to occur of: (i) the
date of the liquidation or dissolution of the Company or the effective date of a
merger where the Company is not the surviving company; (ii) the date the
Investors no longer hold any Securities; or (iv) the third (3rd) anniversary of
the date hereof, the Company hereby agrees to use all commercially reasonable
means to maintain the listing of the Common Stock on a Principal Market, and as
soon as reasonably practicable following the Closing, to take all commercially
reasonable action to cause the Conversion Shares and the Warrants Shares to be
listed on the Principal Market. The Company further agrees, if the Company
applies to have the Common Stock traded on any other Principal Market, it will
include in such application the Conversion Shares and the Warrant Shares, and
will take such other action as is necessary or desirable in the opinion of the
Investors to cause the Conversion Shares and the Warrants to be listed on such
other Principal Market as promptly as possible. The Company will take all action
to continue the listing and trading of its Common Stock on a Principal Market
(including, without limitation, maintaining sufficient net tangible assets) and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market and shall provide
Investors with copies of any correspondence to or from such Principal Market
which questions or threatens delisting of the Common Stock, within three (3)
Trading Days of the Company's receipt thereof, until the Investors have disposed
of all of their Registrable Securities.
15
Section 6.5. Exchange Act Registration. Until the earliest to occur of: (i) the
date of the liquidation or dissolution of the Company or the effective date of a
merger where the Company is not the surviving company; (ii) the date the
Investors no longer hold any Securities; or (iii) the third (3rd) anniversary of
the date hereof, the Company will cause its Common Stock to continue to be
registered under Section 12(b) or (g) of the Exchange Act, will comply in all
respects with its reporting and filing obligations under the Exchange Act, and
will not take any action or file any document (whether or not permitted by the
Exchange Act or the rules thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under said Act
until the Investors have disposed of all of their Registrable Securities.
Section 6.6. Legends. The certificates evidencing the Securities shall be free
of legends, except as set forth in Article IX. If the Transfer Agent requires an
opinion of counsel from the Company's counsel pursuant to the Instructions to
Transfer Agent attached hereto to issue new certificates free of a legend to an
Investor and Company's counsel fails to deliver such opinion within five (5)
days from such a request, then the Company will pay such Investor (pro rated on
a daily basis), as liquidated damages for such failure and not as a penalty, ten
percent (10%) of the market value of Common Stock which would be issuable upon
conversion of such Investor's Convertible Debenture upon on any date of
determination for each week until such opinion is provided, notwithstanding the
fact that the Company has instructed the Transfer Agent to accept such an
opinion from such Investor's counsel.
Section 6.7. Corporate Existence; Conflicting Agreements. Until the earlier of
(i) the date the Investors no longer hold any of the Convertible Debentures or
(ii) the effective date of a merger where the Company is not the surviving
company the Company will take all steps necessary to preserve and continue the
corporate existence of the Company. The Company shall not enter into any
agreement, the terms of which agreement would restrict or impair the right or
ability of the Company to perform any of its obligations under this Agreement or
any of the other agreements attached as exhibits hereto.
Section 6.8. Consolidation; Merger. The Company shall not, at any time after the
date hereof, effect any merger or consolidation of the Company with or into, or
a transfer of all or substantially all of the assets of the Company to, another
entity (a "Consolidation Event") unless the resulting successor or acquiring
entity (if not the Company) assumes by written instrument or by operation of law
the obligation to deliver to the Investors such shares of stock and/or
securities as the Investors are entitled to receive pursuant to this Agreement
and the Convertible Debentures for so long as there are Convertible Debentures
outstanding.
Section 6.9. Issuance of Convertible Debentures and Warrant Shares. The sale of
the Convertible Debentures and the Warrants and the issuance of the Warrant
Shares pursuant to exercise of the Warrants and issuance of the Conversion
Shares upon conversion of the Convertible Debentures shall be made in accordance
with the provisions and requirements of Section 4(2), 4(6) or Regulation D and
any Applicable State Securities Laws. The Company shall make any necessary SEC
and "blue sky" filings as may be required to be made by the Company in
connection with the sale of the Securities to the Investors as required by all
applicable laws, and shall provide a copy thereof to the Investors promptly
after such filing.
16
Section 6.10. Limitation on Future Financing. For so long as the Convertible
Debentures remain outstanding, the Company agrees that it will not enter into
any sale of its Capital Shares for cash at a discount to Market Price or a
variable rate transaction (a "Subsequent Placement") until one hundred eighty
(180) days after the effective date of the Registration Statement except for any
sales (i) pursuant to any presently existing employee benefit plan which plan
has been approved by the Company's stockholders, (ii) pursuant to any
compensatory plan for a full-time employee, director, officer or key consultant,
or (iii) except for any: (a) sales pursuant to any options and warrants issued
by the Company and outstanding as of the date hereof, (b) issuances for
compensatory purposes for a full time employee or key consultant, (c) currently
anticipated capital raising transactions, including a $1.5 million financing of
debt securities with warrants, and a $5 million financing of equity securities,
whereby the Company sells shares of its Common Stock at a per share selling
price greater than the Conversion Price per share (and without any reset
provisions), or (d) with the prior approval of a majority in interest of the
Investors, which will not be unreasonably withheld, in connection with a
strategic partnership or other business transaction, the principal purpose of
which is not simply to raise money. In the event the Company enters into a sale
of its securities at a discount to Market Price or a variable rate transaction
pursuant to this Section 6.9, (A) the Company shall deliver to the Investors a
written notice (the "Subsequent Placement Notice") of its intention to effect
such Subsequent Placement, which Subsequent Placement Notice shall describe in
reasonable detail the proposed terms of such Subsequent Placement, the amount of
proceeds intended to be raised thereunder, the persons and/or entities with whom
such Subsequent Placement shall be effected, and attached to which shall be a
term sheet or similar document relating thereto and (B) the Investors shall not
have notified the Company by 6:30 p.m. (New York City time) on the third (3rd)
Trading Day after their receipt of the Subsequent Placement Notice of their
willingness to provide (or to cause their sole designee to provide), subject to
completion of mutually acceptable documentation, financing to the Company on
conversion, reset and pricing terms (including original issue discount, if any)
and substantially on such other terms as set forth in the Subsequent Placement
Notice. If the Investors shall fail to notify the Company of their intention to
enter into such negotiations within such time period, the Company may effect the
Subsequent Placement substantially upon the terms and to the persons and/or
entities (or Affiliates of such persons and/or entities) set forth in the
Subsequent Placement Notice and the Investors shall not have any further rights
with regard to the sale, conversion or exercise of the Company's securities
pursuant to the Subsequent Placement; provided, however, that the Company shall
provide the Investors with a second Subsequent Placement Notice, and the
Investors shall again have the right of first refusal set forth above in this
Section, if the Subsequent Placement subject to the initial subsequent Placement
Notice shall not have been consummated for any reason on conversion, reset and
pricing terms (including original issue discount, if any) and substantially on
such other terms set forth in such Subsequent Placement Notice within sixty (60)
Trading Days after the date of the initial Subsequent Placement Notice with the
persons and/or entities (or an Affiliate of such persons and/or entities)
identified in the Subsequent Placement Notice. If an Investor shall indicate a
willingness to provide financing in excess of the amount set forth in the
Subsequent Placement Notice, then each Investor shall be entitled to provide
financing pursuant to such Subsequent Placement Notice up to an amount equal to
such Investor's pro rata portion of the aggregate number of Convertible
Debentures purchased by such Investor under this Agreement, but the Company
shall not be required to accept financing from the Investors in an amount less
than or in excess of the amount set forth in the Subsequent Placement Notice. In
17
addition, each Investor may elect to exchange its Convertible Debentures for the
securities to be issued in the Subsequent Placement, valued at the Purchase
Price originally paid by the Investor for the Convertible Debentures, on the
same terms as the other investors in such Subsequent Placement. The Investor
shall notify the Company by 6:30 p.m. (New York City time) on the third (3rd)
Trading Day after their receipt of the Subsequent Placement Notice of their
exercise of exchange, subject to completion of mutually acceptable
documentation, financing to the Company on conversion, reset and pricing terms
(including original issue discount, if any) and substantially on such other
terms as set forth in the Subsequent Placement Notice..
Section 6.11. Pro-Rata Redemption. The Company agrees that if it shall redeem
any of the Convertible Debenture, that it shall offer such redemption pro-rata
among all Investors in proportion their respective initial purchases of such
securities pursuant to this Agreement.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1. Survival. The representations, warranties and covenants made by
each of the Company and each Investor in this Agreement, the annexes, schedules
and exhibits hereto and in each instrument, agreement and certificate entered
into and delivered by them pursuant to this Agreement, shall survive the Closing
and the consummation of the transactions contemplated hereby. In the event of a
breach or violation of any of such representations, warranties or covenants, the
party to whom such representations, warranties or covenants have been made shall
have all rights and remedies for such breach or violation available to it under
the provisions of this Agreement, irrespective of any investigation made by or
on behalf of such party on or prior to the Closing Date, unless such party had
actual knowledge of such breach or violation prior to the Closing Date.
Section 7.2. Indemnity. (a) The Company hereby agrees to indemnify and hold
harmless the Investors, their respective Affiliates and their respective
officers, directors, partners and members (collectively, the "Investor
Indemnitees"), from and against any and all Damages, and agrees to reimburse the
Investor Indemnitees for all reasonable out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Investor Indemnitees and to the extent arising out of or in
connection with:
(i) any misrepresentation or breach of any of the Company's
representations or warranties contained in this Agreement, the annexes,
schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to this
Agreement; or
(ii) any failure by the Company to perform in any material
respect any of its material covenants, agreements, undertakings or
obligations set forth in this Agreement, the annexes, schedules or
exhibits hereto or any instrument, agreement or certificate entered
into or delivered by the Company pursuant to this Agreement; or
18
(iii) any action instituted against the Investors, or any of
them or their respective Affiliates, by any stockholder of the Company
who is not an Affiliate of an Investor, with respect to any of the
transactions contemplated by this Agreement.
(b) Each Investor, severally and not jointly, hereby agrees to
indemnify and hold harmless the Company, its Affiliates and their respective
officers, directors, partners and members (collectively, the "Company
Indemnitees"), from and against any and all Damages, and agrees to reimburse the
Company Indemnitees for all reasonable out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with any misrepresentation, omission of fact, or breach of any of the
Investor's representations or warranties contained in this Agreement, the
annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Investor pursuant to this
Agreement. or any failure by the Investor to perform in any material respect any
of its covenants, agreements, undertakings or obligations set forth in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Investor pursuant to
this Agreement
Section 7.3. Notice. Promptly after receipt by either party hereto seeking
indemnification pursuant to Section 7.2 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party from whom indemnification pursuant to Section
7.2 is being sought (the "Indemnifying Party") of the commencement thereof; but
the omission to so notify the Indemnifying Party shall not relieve it from any
liability that it otherwise may have to the Indemnified Party, except to the
extent that the Indemnifying Party is actually prejudiced by such omission or
delay. In connection with any Claim as to which both the Indemnifying Party and
the Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
above, the Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and
19
expenses of more than one firm of legal counsel for the Indemnified Party
(together with appropriate local counsel). The Indemnifying Party shall not,
without the prior written consent of the Indemnified Party (which consent shall
not unreasonably be withheld), settle or compromise any Claim or consent to the
entry of any judgment that does not include an unconditional release of the
Indemnified Party from all liabilities with respect to such Claim or judgment.
Section 7.4. Direct Claims. In the event one party hereunder should have a claim
for indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered in
any court having competent jurisdiction thereof.
ARTICLE VIII
DUE DILIGENCE REVIEW
Section 8.1. Due Diligence Review. Subject to Section 8.2, the Company shall
make available for inspection and review by the Investors, advisors to and
representatives of the Investors (who may or may not be affiliated with the
Investors and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investors pursuant to the Registration Statement, any such registration
statement or amendment or supplement thereto or any blue sky, Nasdaq or other
filing, all SEC Documents and other proposed filings with the SEC, and all other
publicly available corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such publicly available
information reasonably requested by the Investors or any such representative,
advisor or underwriter in connection with such Registration Statement
(including, without limitation, in response to all questions and other inquiries
reasonably made or submitted by any of them), prior to and from time to time
after the filing and effectiveness of the Registration Statement for the sole
purpose of enabling the Investors and such representatives, advisors and
underwriters and their respective accountants and attorneys to conduct initial
and ongoing due diligence with respect to the Company and the accuracy of the
Registration Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose material non-public information to
the Investors, advisors to or representatives of the Investors unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investors, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. Other than disclosure of any comment letters
received from the SEC staff with respect to the Registration Statement, the
Company may, as a condition to disclosing any non-public information hereunder,
require the Investors' advisors and
20
representatives to enter into a confidentiality agreement in form and content
reasonably satisfactory to the Company and the Investors.
(b) Nothing herein shall require the Company to disclose material
non-public information to the Investors or their advisors or representatives,
and the Company represents that it does not disseminate material non-public
information to any investors who purchase stock in the Company in a public
offering, to money managers or to securities analysts, provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, promptly notify the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting material non-public
information (whether or not requested of the Company specifically or generally
during the course of due diligence by such persons or entities), which, if not
disclosed in the prospectus included in the Registration Statement would cause
such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section 8.2 shall be construed to mean that such persons or entities
other than the Investors (without the written consent of the Investors prior to
disclosure of such information as set forth in Section 8.2(a)) may not obtain
non-public information in the course of conducting due diligence in accordance
with the terms of this Agreement and nothing herein shall prevent any such
persons or entities from notifying the Company of their opinion that based on
such due diligence by such persons or entities, that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
ARTICLE IX
LEGENDS; TRANSFER AGENT INSTRUCTIONS
Section 9.1. Legends. Unless otherwise provided below, each certificate
representing the Securities will bear the following legend or equivalent (the
"Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION,
INCLUDING AS PROVIDED BY REGULATION S.
21
Section 9.2. Transfer Agent Instructions. Upon the execution and delivery
hereof, the Company is issuing to the transfer agent for its Common Stock (and
to any substitute or replacement transfer agent for its Common Stock upon the
Company's appointment of any such substitute or replacement transfer agent)
instructions substantially in the form of Exhibit E hereto. Such instructions
shall be irrevocable by the Company from and after the date hereof or from and
after the issuance thereof to any such substitute or replacement transfer agent,
as the case may be.
Section 9.3. No Other Legend or Stock Transfer Restrictions. No legend other
than the one specified in Section 9.1 has been or shall be placed on the share
certificates representing the Registrable Securities and no instructions or
"stop transfer orders," "stock transfer restrictions," or other restrictions
have been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in the Instructions to Transfer Agent attached
hereto as Exhibit E.
Section 9.4. Investors' Compliance. Nothing in this Article shall affect in any
way each Investor's obligations to comply with all applicable securities laws
upon resale of the Common Stock. ARTICLE X
CHOICE OF LAW; ARBITRATION
Section 10.1. Governing Law/Arbitration. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws. Any dispute under this Agreement
shall be submitted exclusively to arbitration under the American Arbitration
Association (the "AAA") in New York City, New York, and shall be finally and
conclusively determined by the decision of a board of arbitration consisting of
three (3) members (hereinafter referred to as the "Board of Arbitration")
selected according to the rules governing the AAA. The Board of Arbitration
shall meet on consecutive business days in New York City, New York, and shall
reach and render a decision in writing (concurred in by a majority of the
members of the Board of Arbitration) with respect to the amount, if any, which
the losing party is required to pay to the other party in respect of a claim
filed. In connection with rendering its decisions, the Board of Arbitration
shall adopt and follow the laws of the State of New York unless the matter at
issue is the corporation law of the company's state of incorporation, in which
event the corporation law of such jurisdiction shall govern such issue. To the
extent practical, decisions of the Board of Arbitration shall be rendered no
more than thirty (30) calendar days following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. Any decision made by the Board
of Arbitration (either prior to or after the expiration of such thirty (30)
calendar day period) shall be final, binding and conclusive on the parties to
the dispute, and entitled to be enforced to the fullest extent permitted by law
and entered in any court of competent jurisdiction. The Board of Arbitration
shall be authorized and is hereby directed to enter a default judgment against
any party failing to participate in any proceeding hereunder within the time
periods set forth in the AAA rules. The non-
22
prevailing party to any arbitration (as determined by the Board of Arbitration)
shall pay the expenses of the prevailing party, including reasonable attorney's
fees, in connection with such arbitration. Any party shall be entitled to obtain
injunctive relief from a court in any case where such relief is available, and
the prevailing party in such injunctive action shall be entitled to its
reasonable attorneys' fees in connection therewith.
ARTICLE XI
ASSIGNMENT
Section 11.1. Assignment. Neither this Agreement nor any rights of the Investors
or the Company hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any permitted transferee of any of the
Convertible Debentures or Warrants purchased or acquired by any Investor
hereunder with respect to the Convertible Debentures or Warrants held by such
person, and (b) upon the prior written consent of the Company, which consent
shall not unreasonably be withheld or delayed, each Investor's interest in this
Agreement may be assigned at any time, in whole or in part, to any other person
or entity (including any Affiliate of the Investor) who agrees to make the
representations and warranties contained in Article III and who agrees to be
bound by the terms of this Agreement.
ARTICLE XII
NOTICES
Section 12.1. Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) hand delivered, (ii) deposited
in the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by facsimile, addressed as set forth below or to such other address
as such party shall have specified most recently by written notice. Any notice
or other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the first business day
following the date of sending by reputable courier service, fully prepaid,
addressed to such address, or (c) upon actual receipt of such mailing, if
mailed. The addresses for such communications shall be:
23
If to the Company: Detour Magazine, Inc.
0000 Xxxxxxxxx Xxxxxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xx. Xxxxxx X. Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to (shall not constitute Xxxx X. Xxxxx
notice): Troop Xxxxxxx Xxxxxx Xxxxxxx & Xxxxx, LLP
0000 Xxxxxxx Xxxx Xxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
if to the Investors: As set forth on the signature pages hereto
with a copy to: Xxxxxx Xxxxxxx, Esq.
(shall not constitute notice) Xxxxxxx Xxxxxx & Green, P.C.
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving written notice of such changed
address or facsimile number to the other party hereto as provided in this
Section 12.1.
ARTICLE XIII
MISCELLANEOUS
Section 13.1. Counterparts/ Facsimile/ Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 13.2. Entire Agreement. This Agreement, the agreements attached as
Exhibits hereto, which include, but are not limited to the Convertible
Debentures, the Warrants, the Escrow Agreement, and the Registration Rights
Agreement, set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
24
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. The terms and
conditions of all Exhibits to this Agreement are incorporated herein by this
reference and shall constitute part of this Agreement as is fully set forth
herein.
Section 13.3. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that such severability shall be ineffective if
it materially changes the economic benefit of this Agreement to any party.
Section 13.4. Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
Section 13.5. Number and Gender. There may be one or more Investors parties to
this Agreement, which Investors may be natural persons or entities. All
references to plural Investors shall apply equally to a single Investor if there
is only one Investor, and all references to an Investor as "it" shall apply
equally to a natural person.
Section 13.6. Reporting Entity for the Common Stock. The reporting entity relied
upon for the determination of the trading price or trading volume of the Common
Stock on any given Trading Day for the purposes of this Agreement shall be
Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investors and the Company shall be required to employ any other reporting
entity.
Section 13.7. Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Convertible Debentures or any
Conversion Shares or Warrants or any Warrant Shares and (ii) in the case of any
such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form to the Company
(which shall not include the posting of any bond) or (iii) in the case of any
such mutilation, on surrender and cancellation of such certificate, the Company
at its expense will execute and deliver, in lieu thereof, a new certificate of
like tenor.
Section 13.8. Fees and Expenses. Each of the Company and the Investors agrees to
pay its own expenses incident to the performance of its obligations hereunder,
except that the Company shall pay the fees, expenses and disbursements of
Xxxxxxx Xxxxxx & Green, P.C., counsel to the Investors, in an amount equal to
$15,000, all as set forth in the Escrow Agreement.
Section 13.9. Brokerage. Each of the parties hereto represents that it has had
no dealings in connection with this transaction with any finder or broker who
will demand payment of any fee or commission from the other party except for
Union Atlantic, L.C., whose fee shall be paid by the Company. The Company on the
one hand, and the Investors, on the other hand, agree to indemnify the other
against and hold the other harmless from any and all liabilities to any person
claiming brokerage commissions or finder's fees on account of services purported
to have been rendered on behalf of the indemnifying party in connection with
this Agreement or the transactions contemplated hereby.
25
Section 13.10. Publicity. The Company agrees that it will not issue any press
release or other public announcement, except as required by law, of the
transactions contemplated by this Agreement without the prior consent of the
Investors, which shall not be unreasonably withheld nor delayed by more than two
(2) Trading Days from their receipt of such proposed release. No release shall
name the Investors without their express consent, except as required by
applicable federal or state law.
26
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as this __ day of June,
2000.
DETOUR MAGAZINE, INC.
By:/s/ Xxxxxx X. Xxxxx
--------------------------------------
Xxxxxx X. Xxxxx, Chairman of the Board
INVESTORS:
Address: x/x Xxxx Xxxxxxx
Xxxxxxxxxxxx Xxxxx 00 AMRO INTERNATIONAL, S.A.
Xxxxxx XX 0000
Xxxxxxxxxxx
By: /s/ X.X. Xxxxxxxx
--------------------------------------
Fax: 000-000-000-0000 X.X. Xxxxxxxx, Director
Purchase Price:
$250,000
MARKHAM HOLDINGS LTD.
Address:
By: /s/ Authorized Signatory
--------------------------------------
Name: Authorized Signatory
Title: Authorized Signatory
Purchase Price:
$150,000
27
[DETOUR SIG PAGE - PURCHASE AGREEMENT]
ESQUIRE TRADE & FINANCE INC.
Address:
X.X. Xxx 0000
Xxxx, XX-0000 Xxxxxxxxxxx By: /s/ Xxxxxx Xxxxxxx
Fax: 000-000-000-0000 -------------------------------------
Purchase Price: Xxxxxx Xxxxxxx, Authorized Signatory
$250,000
XXXXXXX TRUST REG
Address: x/x Xxxxxxx-Xxxxxxxx-Xxxxxxx
Xxxxxxxxxxx 0
Furstentums 9496 By: /s/ Xxxxxx Xxxxx
Balzers, Liechtenstein -------------------------------------
Fax: 000-000-000-000-000 Xxxxxx Xxxxx, Authorized Signatory
Purchase Price:
$250,000
Address: XXXXXXX XXXXXXXXX
0000-00xx Xxxxxx
Xxxxxxxx, X.X. 00000
Fax: (000) 000-0000 By: /s/ Xxxxxxx Xxxxxxxxx,
-------------------------------------
Purchase Price: Xxxxxxx Xxxxxxxxx, Authorized Signatory
$100,000
28
